SEC Chair Mary Schapiro is on the front page of almost every major financial periodical for her ongoing pursuit to fine Bank of America for impropriety in handling its merger with Merrill Lynch.

Recall that the SEC had initially fined Bank of America $33 million last fall for its improper disclosure of Merrill’s financial figures to BofA shareholders prior to the shareholder vote approving the merger of these two financial titans.

Enter Judge Jed Rakoff who threw out the $33 million fine, calling it a ‘contrivance.’

With the ball squarely back in the SEC’s court, Mary Schapiro has now fined Bank of America a tidy sum of $150 million, but still did not pinpoint any single individual at BofA as being culpable for the impropriety.

What is going on here? Is somebody being protected? Is Schapiro herself protecting the industry from the proper adjudication of legal principles?

The U.S. district judge from Manhattan became a folk hero for investors when he said no to a cozy settlement last year between the Securities and Exchange Commission and Bank of America Corp. He’ll get another chance this week, when he is scheduled to rule on the agency’s latest try at a deal.

Last go around, the SEC proposed that Bank of America pay a $33 million fine for failing to disclose that it had authorized as much as $5.8 billion of bonuses for Merrill Lynch & Co. employees before shareholders voted in December 2008 to approve its purchase of Merrill. Now the commission wants Bank of America to pay a $150 million fine for the same purported violations, plus some additional allegations the agency has thrown into the mix. Rakoff should tell the SEC to get lost.

Once again, the agency is saying it can’t find a single person who should be held liable for these alleged misdeeds. It’s as if the corporate person broke the rules, while the living, breathing people in charge of running Bank of America and Merrill had nothing to do with it. That shouldn’t fly today anymore than it did last September when Rakoff issued his first ruling, in which he said the initial settlement proposal was “neither fair, nor reasonable, nor adequate.”

It’s when you dig through the weeds of the allegations that the absurdity of the commission’s case comes through.

The rules that the SEC says Bank of America violated are known as 14a-3 and14a-9. The first specifies the information that must be furnished to shareholders in a proxy statement. The second one prohibits false or misleading statements in proxies, as well as omissions of material facts.

Thank you, Jonathan, for highlighting these two rules. Making false or misleading statements in a proxy statement is the very core of the lawsuit brought by FINRA member firm Standard Investment Chartered v. FINRA executives, including Mary Schapiro et al.

The SEC says Bank of America violated both by failing to reveal the Merrill bonuses. Additionally, the agency says the company violated 14a-9 by failing to disclose billions of dollars of losses that Merrill sustained in October and November 2008, before shareholders voted.

Here’s the rub. To prove violations of those rules, as the commission and the courts have said many times, all that the SEC would have to show is negligence, which is a fairly low hurdle to clear. It wouldn’t matter if a defendant acted in good faith, or if the lack of disclosure was unintentional.

It would be just about impossible to believe that Bank of America violated these rules through its own negligence without also concluding that at least one of the bank’s bosses acted negligently, too. Yet, going solely on the SEC’s allegations, that supposedly is what happened. It’s enough to make you wonder whom the commission is trying to protect, or whether the agency’s lawyers are too chicken to sue people who might demand a trial.

Whom might the SEC be trying to protect? Perhaps Mary Schapiro herself. If Schapiro were to go after an executive or executives at BofA for violating Rule 14a-9, might those individuals try to turn the tables on Mary and expose her for allegedly violating the same rule as asserted by Standard Investment Chartered’s attorney Richard Greenfield? (Attorney Richard Greenfield Brands Mary Schapiro and FINRA Execs as “Liars”)

The hunter becomes the hunted.

LD

P.S. Rakoff is not only the presiding justice in the BofA-Merrill case, but would also be the judge for the Standard Investment Chartered v. FINRA case, as well. I’d love to be inside his head right about now.